Initiated about an year ago, the proposal had been prompted by representations from car manufacturers who were facing problems in achieving the indigenisation level prescribed in the policy.

"Car manufacturers are by and large happy with the present policy notified on December 16, 1997, and every one of them has signed the memorandum of understanding with the director-general of foreign trade and, therefore, there is no need to alter the policy", commerce ministry sources said. In a nutshell, car manufacturers were to be enjoined to source components from domestic units for their own consumption and also for export. For this, they were required to instal capacity to achieve higher production volumes.

The proposal wasto have resulted in a reduced level of indigenisation than the one prescribed in the policy, though it would have helped push up exports of components and earn foreign exchange for the country.

Further, ancillarisation will have received a boost with a large number of component units coming up in different parts of the country.

According to the proposal, for the purpose of indigenisation, use of local materials alone were to be taken into account and there was no escape from that. For instance, if a vendor, chosen by a manufacturer to turn out an essential item like a gear box, the indigenisation level was to be calculated on the quantum of local materials used. In other words, local value-added was to be the determining factor for arriving at the indigenisatioin level.

If however no materials had been procured locally, it was to be construed as having failed to fulfil the norm. But some manufacturers found it difficult to achieve the indigenisation level because of low production volumes and had,therefore, been taken into account for imports of components made by their vendors for the purpose of indigenisation.

Under the policy, companies entering into an MoU will achieve broad neutralisatioin of foreign exchange over the entire period mentioned in the agreement, in terms of balancing between actual c.i.f value of imports of SKD/CKD/components and f.o.b value of export of cars and auto-components over the said period.

The period of export obligation will start from the third year of commencement of production. This date will be deemed to be the date of the first release of coinsignment from factory after payment of excise duty.